Pacific Ethanol to acquire Illinois Corn Processing

US biofuels producer Pacific Ethanol has entered into a definitive agreement to acquire Illinois Corn Processing, for $76 million (€66m), which includes $15 million in working capital.

ICP is a 90 million gallon per year fuel and industrial alcohol manufacturing, storage and distribution facility adjacent to the Pacific Ethanol Pekin facility and is located on the Illinois River.

ICP produces fuel-grade ethanol, beverage and industrial-grade alcohol, dry distillers grain (DDG) and corn oil. The facility has direct access to end-markets via barge, rail, and truck, and expands Pacific Ethanol’s domestic and international distribution channels.

‘Strategic investments’

Neil Koehler, Pacific Ethanol’s president and CEO, said: “The acquisition of ICP underscores our commitment to making strategic investments that expand and diversify our production platform, increase revenue, expand our marketing reach and improve our overall profitability. Two-thirds of ICP’s production is currently dedicated to producing high-quality, premium-priced alcohol products for the beverage and industrial markets.

“The consolidation of the ICP facility with our two Pekin, Illinois plants integrates the Pekin site into a unique combination of technologies and products with a combined operating capacity of 250 million gallons per year. We expect the acquisition will yield approximately $3 million in annual cost savings over the first six to twelve months after closing, including economies of scale in purchasing power, managing grain supply and transportation costs for DDG and ethanol.

“ICP has a history of consistent profitability operating at better than average industry margins. As such, we expect the ICP acquisition to be immediately accretive to earnings. To further enhance the plant’s value, we have identified several improvement initiatives. As we apply the best practices developed at our plants, we expect to improve yields, increase plant capacity utilization and continue to enhance ICP’s production processes through additional capital investments.

“We are excited to integrate ICP’s talented team and high-value assets into our operations. Upon completion of this acquisition, we will have nine production facilities with combined annual production capacity of 605 million gallons, strengthening our position as a leading producer and marketer of low-carbon renewable fuels in the US.”

Acquisition terms

Pacific Ethanol will acquire Illinois Corn Processing from Illinois Processing Holdings, a wholly-owned subsidiary of SEACOR Holdings and MGPI Processing for $76 million, subject to a customary working capital adjustment. Of the $76 million purchase price, $30 million will be paid in cash and $46 million will be paid through the issuance of non-amortizing secured promissory notes due 18 months from closing. Pacific Ethanol intends to refinance these seller notes in the near future, and the company is currently engaged in negotiations with CoBank to secure a long-term financing vehicle, which – if consummated – will have terms similar to the existing non-recourse loan at the company’s Pekin facilities. 

Bryon McGregor, Pacific Ethanol’s CFO, said: “In conjunction with this transaction we are also taking steps to further strengthen our balance sheet and increase our available liquidity. We have a commitment from Wells Fargo Bank to expand our borrowing capacity on our Kinergy line of credit facility from $85 million to $100 million, reduce the cost of the facility and extend the maturity date for an additional two years.

“We have also entered into an agreement to issue additional senior secured notes and amend our existing notes to increase the amount by approximately $14 million, bringing the note total to approximately $69 million with no material changes to the existing terms.”